The Wall Street Journal reports that Donald Trump’s tax “reform” plan will involve a proposal to cut the top tax rate on “pass-through” businesses—such as the Trump Organization—from 39.6 percent to 15 percent.
Here’s how Slate budget and economics enthusiast Jordan Weissmann explained the dealio with “pass-through” companies when this same idea came up during the 2016 campaign (edited slightly for clarity):
Pass-through entities don’t pay the corporate rate, which currently tops out at 35 percent. Instead, their profits are distributed directly to their owners, who then pay taxes on them as normal income. A lot of truly small businesses are set up this way. But so are hedge funds, private equity firms, real estate developers, and major law firms, whose partners often pay a top rate of 39.6 percent on their earnings.
Jordan Weissmann—what a nerd! But also, wow, what a hugemongous tax cut this could theoretically be for Donald Trump, who did not divest himself at all from his highly active real estate and brand-licensing company before taking office. (His children also have ownership stakes in the Trump Org.)
Of course, we don’t know how much of a tax break it would actually be for Trump because he’s never released his tax returns, which is part of the reason why this proposal will likely be a political liability for him and the rest of the Republican party. Another reason is that it would increase the federal deficit by an estimated $150 billion per year. Which would be a lot—the federal deficit in the 2016 fiscal year was $587 billion total—and unless it’s paired with big spending cuts, would mean it can’t be passed under Congressional “reconciliation” rules and would thus require Democratic votes to get through the Senate.
But still, wow!